The two macroeconomic effects that make the size of the shift in aggregate demand differ from the change in government purchases are:
A)the multiplier effect and the crowding-out effect
B)the multiplier effect and the Doppler effect
C)the Keynes effect and the crowding-out effect
D)the accelerator effect and the multiplier effect

Question

Quizplus · Accepted Answer

The multiplier effect occurs when government spending increases, leading to increased consumer spending and increased aggregate demand, which in turn leads to increased production and employment. The crowding-out effect occurs when government spending increases, leading to increased interest rates and decreased private investment, which in turn leads to decreased production and employment. These two effects together make the size of the shift in aggregate demand differ from the change in government purchases.

The Two Macroeconomic Effects That Make the Size of the Shift